Criminal matter concerning market manipulation reached court

Under the general procedure, the Northern Circuit Prosecutor’s Office sent to court a criminal matter in which two persons are accused of manipulating the securities market.

The Prosecutor’s Office initiated a criminal procedure in the given matter in February 2009, on the basis of the report of a criminal offence submitted by the Financial Supervision Authority. The preliminary investigation was conducted by the department for economic crimes in the Northern Circuit Prosecutor’s Office.

Toomas (45) is accused of the following: being his wife’s authorised representative, he gave Karoly (30), broker for AS SEB Pank, between 14-21.07.2008 transaction orders by phone to sell the shares on the nominee account of AS SEB Pank related to his wife in large amounts for a decreasingly lower price over time. The purpose of such activity was to bring the market price of a share of AS Arco Vara below the price level of EUR 0.56, which gave Toomas the opportunity to influence other major shareholders of AS Arco Vara in making decisions.

In said manner, about 500 000 shares were put on sale, which resulted in the creation of an artificial price limit and a negative pressure on the price of a share. As a result of such planned influence, the traders on the stock exchange were misled as to the actual market value of a share of AS Arco Vara and at the end of the trading day of 22.07.2008, the price of the share dropped to EUR 0.55.

According to Northern Circuit Prosecutor Maria Sutt, market manipulation is a hidden crime that is hard to prove and the Prosecutor’s Office is glad that in the present matter, sufficient evidence has been gathered with the help of the police and the Financial Supervision Authority, which allow for the sending of the criminal matter to court. “As we have no prior experience in proceedings on the basis of this section and it is a very specific field, the court proceeding will definitely be complex and full of disputes,” Sutt noted.

Kilvar Kessler, Member of the Management Board of the Financial Supervision Authority, emphasised that it is their clear priority to eliminate any criminal elements in the financial intermediaries.“ The situations in which a stockbroker helps manipulate the market or a financial analyst misuses inside information are not acceptable in any way.” I wish to emphasise to all financial intermediaries that in your work, you have the obligation to prevent the exploitation of the financial sector for criminal purposes.”

Senior Superintendent Rain Kuus, Head of the Economic Crime Division in the Northern Police Prefecture, stated that an important task of modern economic police is to ensure that the securities market operates honestly and is based on the equal treatment of investors. “The proceedings completed by us by today, in the crime related to securities circulation, indicate that there is a problem.” Kuus added that the police and Prosecutor’s Office will definitely pay more attention to this serious field of economic crime in the future as well.

Toomas and Karoly were charged on the basis of the section in the Penal Code which handles market manipulation. In case of conviction in court, the punishment for such a crime can be a monetary fine or up to three years of imprisonment.